7 Benefits of Keeping your Business and Personal Bank Accounts Separate
Keeping your business and personal bank account separate as a small or new business owner can be tricky. As much as it may seem faster and simpler to mix the accounts, this act can lead to a complex situation in running your finances. It may mess up your bank accounts. It is no wonder we recommend you keep two different accounts; one for your business and the other one for personal use. Below are 7 benefits of taking this step.
7 Benefits of Keeping Separate Accounts
Improves Budgeting
Distinct business and personal bank accounts makes it easier for you to make a budget in the business. This is because you can easily track expenses and transactions taking place. Therefore, as much as it may seem simpler to combine the two accounts, separating them enhances budgeting.
Remember, having separate accounts for the business and your personal needs means having good bookkeeping. When you do this, you can trace activities in the business, and use the transactions in forecasting what to expect in your business. Furthermore, separate accounts can help you know details such as penalties, debts, and any tax complications in your business. When you consider all these, you can budget appropriately for your business.
Read: Best Bank Account to Set Up as An Emergency Fund
Better Legal Protection
Different business and personal accounts protect your personal assets and funds. This is especially important in case there are claims against the business. With distinguished accounts, you have proof of what belongs to which account.
If you want legal protection and to keep your personal liability away from your business liability, you should separate your business and personal bank accounts.
Enhances Revenue Tracking
Having a long-term seamless revenue tracking system is achievable. How? You can do this by having a different bank account for your business other than mixing it with your personal account. This will help you keep business and personal expenses separate.
Remember, tracking revenue by separating the expenses incurred makes the auditing process easier. Additionally, distinguishing the business account from your personal account helps you determine to what extent your business is growing. This is because it implies clearly tracking your business revenue and overheads.
Note that, even when buying a company a combined bank account and personal account is a red flag, so have them separate.
Comes in Handy When Lending or Receiving Credit
A separate business bank account is crucial when you want to apply for business credit, whether a credit card or even a loan. When you can prove you have a bank account for your business one that is separate from your personal transactions, you create a good foundation for your credit history.
A well-established business bank account has a higher chance of borrowing money compared to one with a combined personal and bank account. So, other than having a good credit rating, a separate business bank account is also important to increase your chances of getting the loan you borrow from a bank or a lender.
Similarly, lenders may first consider businesses with separate accounts rather than choosing those with combined accounts. Therefore, if you want a business loan but still haven’t distinguished your business and personal account, wait no more. You can open a bank or a business account with Bank pro.
More Professional and Legitimate
Imagine having your customers pay to your personal account, or having your business pay suppliers from a personal business account! How legitimate and credible does that make your business? In most cases, others will not consider you to be professional. What’s more, you may lose their trust in your business. On the contrary, when you have a distinct bank account for your business and use it to carry out payment transactions, you improve its legitimacy and professionalism.
Therefore, other than having your personal name, ensure your bank account contains your business name for it to be more trustworthy. This will make it look more professional, legit, and credible.
Simplifies Accounting Workflow
Combining a business and personal account may seem to be time-saving. However, it will waste a lot of time in the long run, especially when sorting out each transaction. This can be a hassle during tax season. After all, the more you combine the two transactions, the more difficult it gets to sort them out.
You can end up mixing transactions, or even not know which one falls into what account. Therefore, when you have to manually sort out expenses for each account from a combined bank account, there are higher chances of committing errors such as omission.
On the contrary, when you keep a personal account separate from a business account, you can easily manage your money. Nonetheless, you make work easier for your accountant or bookkeeper when you distinguish between the two accounts.
Improve Business Clarity and Discipline
Having a separate account for your business helps you paint a clear picture of your business and its path to success. You will know your cash flow; plan accordingly and easily track it down. This way, you can know when to apply for funding so you can meet your goals. Additionally, distinguishing personal and business bank accounts can help you raise money easily for the business since you will have clear business bank records. Remember, a well-planned cash flow system is one way of achieving success in your business.
Also, with a separate business account, you easily stay disciplined in matters of finances. This is because you will not be tempted to use business funds to meet personal goals and objectives. Besides, you will make smarter choices that benefit your business, without being swayed to spend money on personal matters.
Open a Business and Personal Bank Account with Bank Pro
Combining personal and business accounts is a temptation that faces many small and new business owners. It may appear to be time-saving at first. However, as time goes on, you realize your business needs to be audited, there are taxes to be paid, and you have to keep a budget, track your transactions, and make predictions that are geared toward the success of your business. There are very complex when you have a joint bank account for both your personal and business needs. Therefore, why not open a new bank account to keep each one separate? The good news is that Bank.pro is here at your service.
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